INNOSPEC INC., 10-Q filed on 04 Nov 20
v3.20.2
Cover Page - shares
9 Months Ended
Sep. 30, 2020
Oct. 31, 2020
Cover [Abstract]    
Document Type 10-Q  
Amendment Flag false  
Document Fiscal Year Focus 2020  
Document Fiscal Period Focus Q3  
Document Quarterly Report true  
Document Transition Report false  
Current Fiscal Year End Date --12-31  
Document Period End Date Sep. 30, 2020  
Entity File Number 1-13879  
Entity Registrant Name INNOSPEC INC.  
Entity Central Index Key 0001054905  
Entity Incorporation, State or Country Code DE  
Entity Tax Identification Number 98-0181725  
Entity Address, Postal Zip Code 80112  
City Area Code 303  
Local Phone Number 792 5554  
Security Exchange Name NASDAQ  
Title of 12(b) Security Common stock  
Entity Filer Category Large Accelerated Filer  
Entity Small Business false  
Entity Emerging Growth Company false  
Entity Shell Company false  
Entity Common Stock, Shares Outstanding   24,579,934
Entity Address, Address Line One 8310 South Valley Highway  
Entity Address, Address Line Two Suite 350  
Entity Address, City or Town Englewood  
Entity Address, State or Province CO  
Trading Symbol IOSP  
Entity Current Reporting Status Yes  
Entity Interactive Data Current Yes  
v3.20.2
Condensed Consolidated Statements of Income - USD ($)
shares in Thousands, $ in Millions
3 Months Ended 9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Sep. 30, 2020
Sep. 30, 2019
Income Statement [Abstract]        
Net sales $ 265.1 $ 371.9 $ 882.3 $ 1,122.6
Cost of goods sold (186.4) (252.8) (630.6) (774.6)
Gross profit 78.7 119.1 251.7 348.0
Operating expenses:        
Selling, general and administrative (54.2) (71.2) (182.1) (214.9)
Research and development (7.7) (9.7) (24.4) (27.0)
Restructuring charge (0.0) (0.0) (21.1) (0.0)
Impairment of intangible assets (0.0) (0.0) (19.8) (0.0)
Total operating expenses (61.9) (80.9) (247.4) (241.9)
Operating income 16.8 38.2 4.3 106.1
Other income, net 3.8 1.0 7.8 5.1
Interest expense, net (0.4) (1.4) (1.5) (4.1)
Income before income tax expense 20.2 37.8 10.6 107.1
Income tax expense (7.5) (7.7) (4.5) (26.0)
Net income $ 12.7 $ 30.1 $ 6.1 $ 81.1
Earnings per share:        
Basic $ 0.52 $ 1.23 $ 0.25 $ 3.31
Diluted $ 0.51 $ 1.22 $ 0.25 $ 3.28
Weighted average shares outstanding (in thousands):        
Basic 24,570 24,491 24,555 24,476
Diluted 24,720 24,715 24,758 24,700
v3.20.2
Condensed Consolidated Statements of Comprehensive Income - USD ($)
$ in Millions
3 Months Ended 9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Sep. 30, 2020
Sep. 30, 2019
Statement of Comprehensive Income [Abstract]        
Net income $ 12.7 $ 30.1 $ 6.1 $ 81.1
Changes in cumulative translation adjustment, net of tax of $(0.5) million, $1.1 million, $1.0 million and $1.2 million respectively 11.9 (12.4) 9.5 (14.0)
Changes in derivative instruments, net of tax of $0.0 million, $0.1 million, $0.0 million and $0.3 million respectively 0.0 (0.3) 0.0 (1.5)
Amortization of prior service credit, net of tax of $0.0 million, $0.0 million, $0.1 million and $0.1 million respectively (0.1) (0.1) (0.5) (0.6)
Amortization of actuarial net losses, net of tax of $0.0 million, $0.0 million, $(0.1) million and $0.0 million respectively 0.3 (0.0) 1.1 (0.0)
Total other comprehensive income/(loss) 12.1 (12.8) 10.1 (16.1)
Total comprehensive income $ 24.8 $ 17.3 $ 16.2 $ 65.0
v3.20.2
Condensed Consolidated Statements of Comprehensive Income (Parenthetical) - USD ($)
$ in Millions
3 Months Ended 9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Sep. 30, 2020
Sep. 30, 2019
Statement of Comprehensive Income [Abstract]        
Changes in cumulative translation adjustment, tax $ (0.5) $ 1.1 $ 1.0 $ 1.2
Changes in derivative instruments, tax 0.0 0.1 0.0 0.3
Amortization of prior service credit, tax 0.0 0.0 0.1 0.1
Amortization of actuarial net losses, tax $ 0.0 $ 0.0 $ (0.1) $ 0.0
v3.20.2
Condensed Consolidated Balance Sheets - USD ($)
$ in Millions
Sep. 30, 2020
Dec. 31, 2019
Current assets:    
Cash and cash equivalents $ 66.6 $ 75.7
Trade and other accounts receivable (less allowances of $4.7 million and $3.8 million respectively) 206.2 292.0
Inventories (less allowances of $18.3 million and $14.5 million respectively):    
Finished goods 171.3 173.9
Raw materials 68.5 70.7
Total inventories 239.8 244.6
Prepaid expenses 7.9 14.7
Prepaid income taxes 8.1 2.5
Other current assets 0.2 0.8
Total current assets 528.8 630.3
Net property, plant and equipment 204.2 198.7
Operating lease right-of-use assets 29.7 32.4
Goodwill 367.2 363.0
Other intangible assets 78.6 113.5
Deferred tax assets 9.4 9.1
Pension asset 120.0 115.9
Other non-current assets 5.8 5.9
Total assets 1,343.7 1,468.8
Current liabilities:    
Accounts payable 81.8 122.0
Accrued liabilities 125.7 154.0
Current portion of finance leases 0.4 1.0
Current portion of plant closure provisions 5.2 5.6
Current portion of accrued income taxes 5.4 10.3
Current portion of operating lease liabilities 11.3 10.6
Total current liabilities 229.8 303.5
Long-term debt 0.0 58.6
Finance leases, net of current portion 0.2 0.5
Plant closure provisions, net of current portion 52.7 43.7
Accrued income taxes, net of current portion 32.4 36.2
Unrecognized tax benefits 15.5 16.4
Operating lease liabilities, net of current portion 18.5 21.9
Deferred tax liabilities 47.2 49.6
Pension liabilities and post-employment benefits 18.7 17.8
Other non-current liabilities 2.7 1.7
Equity:    
Common stock, $0.01 par value, authorized 40,000,000 shares, issued 29,554,500 shares 0.3 0.3
Additional paid-in capital 334.4 330.4
Treasury stock (4,974,805 and 5,047,278 shares at cost, respectively) (93.7) (93.3)
Retained earnings 748.8 755.5
Accumulated other comprehensive loss (64.3) (74.4)
Total Innospec stockholders' equity 925.5 918.5
Non-controlling interest 0.5 0.4
Total equity 926.0 918.9
Total liabilities and equity $ 1,343.7 $ 1,468.8
v3.20.2
Condensed Consolidated Balance Sheets (Parenthetical) - USD ($)
$ in Millions
Sep. 30, 2020
Dec. 31, 2019
Statement of Financial Position [Abstract]    
Allowances for doubtful accounts $ 4.7 $ 3.8
Inventory allowances $ 18.3 $ 14.5
Common stock, par value $ 0.01 $ 0.01
Common stock, shares authorized 40,000,000 40,000,000
Common stock, shares issued 29,554,500 29,554,500
Treasury stock, shares 4,974,805 5,047,278
v3.20.2
Condensed Consolidated Statements of Cash Flows - USD ($)
$ in Millions
9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Cash Flows from Operating Activities    
Net income $ 6.1 $ 81.1
Adjustments to reconcile net income to net cash provided by operating activities:    
Depreciation and amortization 35.3 36.3
Impairment of intangible assets 19.8 0.0
Impairment of tangible assets 2.0 0.0
Deferred tax expense (3.3) (0.1)
Cash contributions to defined benefit pension plans (0.0) (0.4)
Non-cash movements on defined benefit pension plans (3.3) (4.7)
Stock option compensation 4.4 4.9
Changes in assets and liabilities, net of effects of acquired and divested companies:    
Trade and other accounts receivable 86.0 (20.8)
Inventories 3.3 (6.0)
Prepaid expenses 5.7 2.5
Accounts payable and accrued liabilities (64.1) 9.4
Accrued income taxes (12.9) (0.4)
Plant closure provisions 8.2 0.1
Unrecognized tax benefits (0.9) 1.0
Other assets and liabilities 1.4 0.3
Net cash provided by operating activities 87.7 103.2
Cash Flows from Investing Activities    
Capital expenditures (21.7) (22.6)
Internally developed software (0.0) (1.1)
Net cash used in investing activities (21.7) (23.7)
Cash Flows from Financing Activities    
Non-controlling interest 0.1 0.0
Proceeds from revolving credit facility 15.0 105.5
Repayments of revolving credit facility (75.0) (99.0)
Repayment of term loans 0.0 (82.5)
Repayments of finance leases (0.9) (1.3)
Refinancing costs (0.3) (1.3)
Dividend paid (12.8) (12.2)
Issue of treasury stock 1.2 1.2
Repurchase of common stock (2.1) (2.2)
Net cash used in financing activities (74.8) (91.8)
Effect of foreign currency exchange rate changes on cash (0.3) (0.5)
Net change in cash and cash equivalents (9.1) (12.8)
Cash and cash equivalents at beginning of period 75.7 123.1
Cash and cash equivalents at end of period $ 66.6 $ 110.3
v3.20.2
Condensed Consolidated Statements of Equity - USD ($)
$ in Millions
Total
Common Stock [Member]
Additional Paid-In Capital [Member]
Treasury Stock [Member]
Retained Earnings [Member]
Accumulated Other Comprehensive Loss [Member]
Non-Controlling Interest [Member]
Beginning Balance at Dec. 31, 2018 $ 825.5 $ 0.3 $ 324.9 $ (92.8) $ 668.3 $ (75.7) $ 0.5
Net income 81.1       81.1    
Dividend paid (12.2)       (12.2)    
Changes in cumulative translation adjustment, net of tax (14.0)         (14.0)  
Share of net income (0.1)           (0.1)
Changes in derivative instruments, net of tax (1.5)         (1.5)  
Treasury stock reissued 1.2   (0.4) 1.6      
Treasury stock repurchased (2.1)     (2.1)      
Stock option compensation 4.9   4.9        
Amortization of prior service credit, net of tax (0.6)         (0.6)  
Amortization of actuarial net losses, net of tax (0.0)            
Ending Balance at Sep. 30, 2019 882.2 0.3 329.4 (93.3) 737.2 (91.8) 0.4
Beginning Balance at Jun. 30, 2019 863.1 0.3 327.7 (93.4) 707.1 (79.0) 0.4
Net income 30.1       30.1    
Changes in cumulative translation adjustment, net of tax (12.4)         (12.4)  
Changes in derivative instruments, net of tax (0.3)         (0.3)  
Treasury stock reissued 0.1     0.1      
Stock option compensation 1.7   1.7        
Amortization of prior service credit, net of tax (0.1)         (0.1)  
Amortization of actuarial net losses, net of tax (0.0)            
Ending Balance at Sep. 30, 2019 882.2 0.3 329.4 (93.3) 737.2 (91.8) 0.4
Beginning Balance at Dec. 31, 2019 918.9 0.3 330.4 (93.3) 755.5 (74.4) 0.4
Net income 6.1       6.1    
Dividend paid (12.8)       (12.8)    
Changes in cumulative translation adjustment, net of tax 9.5         9.5  
Share of net income 0.1           0.1
Changes in derivative instruments, net of tax 0.0            
Treasury stock reissued 1.3   (0.4) 1.7      
Treasury stock repurchased (2.1)     (2.1)      
Stock option compensation 4.4   4.4        
Amortization of prior service credit, net of tax (0.5)         (0.5)  
Amortization of actuarial net losses, net of tax 1.1         1.1  
Ending Balance at Sep. 30, 2020 926.0 0.3 334.4 (93.7) 748.8 (64.3) 0.5
Beginning Balance at Jun. 30, 2020 899.7 0.3 333.0 (93.8) 736.1 (76.4) 0.5
Net income 12.7       12.7    
Changes in cumulative translation adjustment, net of tax 11.9         11.9  
Changes in derivative instruments, net of tax 0.0            
Treasury stock reissued (0.1)   (0.2) 0.1      
Stock option compensation 1.6   1.6        
Amortization of prior service credit, net of tax (0.1)         (0.1)  
Amortization of actuarial net losses, net of tax 0.3         0.3  
Ending Balance at Sep. 30, 2020 $ 926.0 $ 0.3 $ 334.4 $ (93.7) $ 748.8 $ (64.3) $ 0.5
v3.20.2
Consolidated Statements of Equity (Parenthetical) - $ / shares
9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Statement of Stockholders' Equity [Abstract]    
Dividend paid, per share $ 0.52 $ 0.52
v3.20.2
Basis of Presentation
9 Months Ended
Sep. 30, 2020
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Basis of Presentation
NOTE 1 – BASIS OF PRESENTATION
The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America for interim financial information and with the instructions to Form
10-Q
and Article 10 of Regulation
S-X
under the Securities Exchange Act of 1934. Accordingly, they do not include all the information and notes necessary for a comprehensive presentation of financial position, results of operations and cash flows.
It is our opinion, however, that all adjustments (consisting of normal, recurring adjustments, unless otherwise disclosed) have been made which are necessary for the condensed consolidated financial statements to be fairly stated. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form
10-K
for the year ended December 31, 2019 filed on February 19, 2020 (the “2019 Form
10-K”).
The results for the interim period covered by this report are not necessarily indicative of the results to be expected for the full year.
When we use the terms “Innospec,” “the Corporation,” “the Company,” “Registrant,” “we,” “us” and “our,” we are referring to Innospec Inc. and its consolidated subsidiaries unless otherwise indicated or the context otherwise requires.
Credit losses
With an effective date of January 1, 2020, we have applied Accounting Standards Update (ASU)
No. 2016-13,
Financial Instruments – Credit Losses (ASC Topic 326). This replaces the incurred loss impairment methodology under previous GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates.
The standard was adopted using prospective application and principally impacts the allowance for trade and other accounts receivables. Upon adoption, there was no adjustment made to opening retained earnings as at January 1, 2020. As a result of implementing the standard, the Company did not recognize any material change to the allowance within trade and other accounts receivable as at January 1, 2020. Trade and other accounts receivable are shown net of a $4.7 million allowance at September 30, 2020. The allowance remains immaterial to the financial statements.
The Company is exposed to credit losses primarily through sales of products. The Company’s expected loss allowance methodology for trade and other accounts receivable is developed using historical collection experience, current and future economic and market conditions and a review of the current status of customers’ receivables. Due to the short-term nature of such receivables, the estimate of accounts receivable amounts that may not be collected is based on aging of the accounts receivable balances and the financial condition of customers. Additionally, a further allowance is included to account for the Company’s historic track record of credit losses, for balances which are not aged sufficiently to be considered under the aging based approach.
The Company considered the current and expected future economic and market conditions surrounding the
COVID-19
pandemic and determined that the estimate of credit losses was not significantly impacted.
v3.20.2
Segment Reporting
9 Months Ended
Sep. 30, 2020
Segment Reporting [Abstract]  
Segment Reporting
NOTE 2 – SEGMENT REPORTING
The Company reports its financial performance based on the following four reportable segments: Fuel Specialties, Performance Chemicals, Oilfield Services and Octane Additives.
The Fuel Specialties, Performance Chemicals and Oilfield Services segments operate in markets where we actively seek growth opportunities although their ultimate customers are different. The Octane Additives segment ceased
trading and is no longer
a reporting segment from July 1, 2020, as reported in our Quarterly Report on Form
10-Q
for the quarter ended June 30, 2020 (see Note 4 of the Notes to the Condensed Consolidated Financial Statements for further information).
The Company evaluates the performance of its segments based on operating income. The following tables analyze sales and other financial information by the Company’s reportable segments:

    
Three Months Ended

September 30
    
Nine Months Ended
September 30
   
(in millions)
  
2020
    
2019
    
2020
    
2019
   
Net Sales:
           
Refinery and Performance
   $ 86.8      $ 96.5      $ 270.3      $ 309.0    
Other
     33.2        47.6        104.1        124.4    
  
 
 
    
 
 
    
 
 
    
 
 
   
Fuel Specialties
     120.0        144.1        374.4        433.4    
  
 
 
    
 
 
    
 
 
    
 
 
   
Personal Care
     57.1        55.0        169.9        170.9    
Home Care
     21.6        21.1        64.5        71.2    
Other
     23.3        23.8        76.4        80.6    
  
 
 
    
 
 
    
 
 
    
 
 
   
Performance Chemicals
     102.0        99.9        310.8        322.7    
  
 
 
    
 
 
    
 
 
    
 
 
   
Oilfield Services
     43.1        121.4        197.1        358.1    
Octane Additives
     0.0        6.5        0.0        8.4    
  
 
 
    
 
 
    
 
 
    
 
 
   
   $
265.1
   $  
371.9
   $  
882.3
   $  
1,122.6
 
  
 
 
    
 
 
    
 
 
    
 
 
   
Gross profit/(loss):
           
Fuel Specialties
   $ 40.3      $ 54.1      $ 116.9      $ 154.5    
Performance Chemicals
     24.0        22.6        76.5        73.2    
Oilfield Services
     14.4        41.2        60.5        120.4    
Octane Additives
     0.0        1.2        (2.2      (0.1  
  
 
 
    
 
 
    
 
 
    
 
 
   
   $ 78.7      $ 119.1      $ 251.7      $ 348.0    
  
 
 
    
 
 
    
 
 
    
 
 
   
Operating income/(loss):
           
Fuel Specialties
   $ 22.2      $ 31.1      $ 59.0      $ 88.1    
Performance Chemicals
     12.4        9.3        40.2        33.8    
Oilfield Services
     (4.5      10.0        (9.7      27.9    
Octane Additives
     0.0        0.8        (2.8      (1.9  
Corporate costs
     (13.3      (13.0      (41.5      (41.8  
Restructuring charge
     0.0        0.0        (21.1      0.0    
Impairment of intangible assets
     0.0        0.0        (19.8      0.0    
  
 
 
    
 
 
    
 
 
    
 
 
   
Total operating income
   $ 16.8      $ 38.2      $ 4.3      $ 106.1    
  
 
 
    
 
 
    
 
 
    
 
 
   
v3.20.2
Earnings per Share
9 Months Ended
Sep. 30, 2020
Earnings Per Share [Abstract]  
Earnings per Share
NOTE 3 – EARNINGS PER SHARE
Basic earnings per share is based on the weighted average number of common shares outstanding during the period. Diluted earnings per share includes the effect of options that are dilutive and outstanding during the period under the treasury stock method. Per share amounts are computed as follows:
 
    
Three Months Ended
September 30
    
Nine Months Ended
September 30
 
    
2020
    
2019
    
2020
    
2019
 
Numerator (in millions):
           
Net income available to common stockholders
   $ 12.7      $ 30.1      $ 6.1      $ 81.1  
  
 
 
    
 
 
    
 
 
    
 
 
 
Denominator (in thousands):
           
Weighted average common shares outstanding
     24,570        24,491        24,555        24,476  
Dilutive effect of stock options and awards
     150        224        203        224  
  
 
 
    
 
 
    
 
 
    
 
 
 
Denominator for diluted earnings per share
     24,720        24,715        24,758        24,700  
  
 
 
    
 
 
    
 
 
    
 
 
 
Net income per share, basic:
   $ 0.52      $ 1.23      $ 0.25      $ 3.31  
  
 
 
    
 
 
    
 
 
    
 
 
 
Net income per share, diluted:
   $ 0.51      $ 1.22      $ 0.25      $ 3.28  
  
 
 
    
 
 
    
 
 
    
 
 
 
In the three and nine months ended September 30, 2020, the average number of anti-dilutive options excluded from the calculation of diluted earnings per share were 17,980 and 23,420, respectively (three and nine months ended September 30, 2019 – 12,539 and 6,270, respectively).
v3.20.2
Restructuring
9 Months Ended
Sep. 30, 2020
Restructuring Charges [Abstract]  
Restructuring
NOTE 4 – RESTRUCTURING
During the quarter ended June 30, 2020, the Company recorded provisions of $21.1 million for the restructuring of its Octane Additives segment in line with the end of the manufacturing and sale of tetra ethyl lead (“TEL”) for use in motor gasoline. As a result, the Octane Additives segment ceased
trading and is no longer
a reporting segment from July 1, 2020. Production of TEL will continue for sales to the aviation market (“AvTel”), as reported within our Fuel Specialties segment.
The
restructuring
 
provisions comprise the future committed costs of environmental monitoring of $2.0 million, remediation of facilities of $7.5 million, provision for a loss making contract of $7.2 million, impairment of tangible assets of $2.0 million and costs of redundancy due to the
down-sizing
of the TEL operations of $2.4 million. During the quarter ended September 30, 2020 the utilization of these provisions and the unwinding of the discounting was not material.
v3.20.2
Goodwill
9 Months Ended
Sep. 30, 2020
Goodwill and Intangible Assets Disclosure [Abstract]  
Goodwill
NOTE 5 – GOODWILL
The following table summarizes the goodwill movements:
 
(in millions)
  
Gross Cost
    
Accumulated
Impairment
Losses
    
Net Book
Amount
 
Opening balance at January 1
   $ 599.5      $ (236.5    $ 363.0  
Exchange effect
     4.2        0.0        4.2  
  
 
 
    
 
 
    
 
 
 
Closing balance at September 30
   $ 603.7      $ (236.5    $ 367.2  
  
 
 
    
 
 
    
 
 
 
v3.20.2
Other Intangible Assets
9 Months Ended
Sep. 30, 2020
Goodwill and Intangible Assets Disclosure [Abstract]  
Other Intangible Assets
NOTE 6 – OTHER INTANGIBLE ASSETS
The following table summarizes the other intangible assets movements:
 
(in millions)
  
2020
 
Gross cost at January 1
   $ 294.8  
Exchange effect
     2.0  
  
 
 
 
Gross cost at September 30
     296.8  
  
 
 
 
Accumulated amortization at January 1
     (181.3
Amortization expense
     (16.3
Impairment
     (19.8
Exchange effect
     (0.8
  
 
 
 
Accumulated amortization at September 30
     (218.2
  
 
 
 
Net book amount at September 30
   $ 78.6  
  
 
 
 
During the quarter ended June 30, 2020, the Company impaired the intangible assets arising from the acquisition of Strata Control Services Inc., which forms part of our Oilfield Services segment. The impairment review was triggered by the reduction in demand for drilling related products. A discounted cash flow analysis was performed to determine the fair value of the assets, linked to the down turn in the results of that segment. The impaired assets relate to technology ($10.0 million) and customer relationships ($9.8 million).
The amortization expense for the nine months ended September 30, 2020 was $16.3 million (nine months ended September 30, 2019 – $17.2 million).
The net book amount by category of other intangible assets is shown in the following table:
 
(in millions)
  
September 30

2020
    
December 31

2019
 
Product rights
   $ 7.2      $ 10.1  
Brand names
     2.5        2.9  
Technology
     20.3        32.6  
Customer relationships
     45.1        60.8  
Internally developed software
     3.5        7.1  
  
 
 
    
 
 
 
   $ 78.6      $ 113.5  
  
 
 
    
 
 
 
v3.20.2
Pension and Post-Employment Benefits
9 Months Ended
Sep. 30, 2020
Retirement Benefits [Abstract]  
Pension and Post-Employment Benefits
NOTE 7 – PENSION AND POST EMPLOYMENT BENEFITS
The Company maintains a defined benefit pension plan (the “Plan”) covering a number of its current and former employees in the United Kingdom, although it does also have other much smaller pension arrangements in the U.S. and overseas. The Plan is closed to future service accrual but has a large number of deferred and current pensioners.
The net service cost for the three and nine months ended September 30, 2020 was $0.3 million and $0.9 million respectively (three and nine months ended September 30, 2019 – $0.2 million and $0.7 million respectively) and has been recognized in selling, general and administrative expenses within corporate costs. The following table shows the income statement effect recognized within other income, net:
 
    
Three Months Ended
September 30
    
Nine Months Ended
September 30
 
(in millions)
  
2020
    
2019
    
2020
    
2019
 
Plan net pension credit/(charge):
           
Interest cost on projected benefit obligation
   $ (2.9    $ (3.6    $ (8.4    $ (11.4
Expected return on plan assets
     4.5        5.5        13.3        16.5  
Amortization of prior service credit
     0.2        0.1        0.6        0.7  
Amortization of actuarial net losses
     (0.2      0.0        (0.6      0.0  
  
 
 
    
 
 
    
 
 
    
 
 
 
   $ 1.6      $ 2.0      $ 4.9      $ 5.8  
  
 
 
    
 
 
    
 
 
    
 
 
 
The amortization of prior service credit and actuarial net losses is a reclassification out of accumulated other comprehensive loss into other income and expense.
The Company also maintains an unfunded defined benefit pension plan covering a number of its current and former employees in Germany (the “German plan”) within our Fuel Specialties segment. The German plan is closed to new entrants and has no assets. The net service cost for the German plan for the three and nine months ended September 30, 2020 was $0.0 million and $0.1 million respectively (three and nine months ended September 30, 2019 – $0.0 million and $0.1 million respectively) and has been recognized in selling, general and administrative expenses. The following table shows the income statement effect recognized within other income and expense:
 
    
Three Months Ended
September 30
    
Nine Months Ended
September 30
 
(in millions)
  
2020
    
2019
    
2020
    
2019
 
Plan net pension charge:
           
Interest cost on projected benefit obligation
   $ 0.0      $ (0.1    $ (0.1    $ (0.2
Amortization of actuarial net losses
     (0.2      (0.1      (0.6      (0.2
  
 
 
    
 
 
    
 
 
    
 
 
 
   $ (0.2    $ (0.2    $ (0.7    $ (0.4
  
 
 
    
 
 
    
 
 
    
 
 
 
As at September 30, 2020, our Performance Chemicals segment has obligations for post-employment benefits in its European businesses with a liability of $4.8 million (December 31, 2019 – $4.5 million).
 
v3.20.2
Income Taxes
9 Months Ended
Sep. 30, 2020
Income Tax Disclosure [Abstract]  
Income Taxes
NOTE 8 – INCOME TAXES
A roll-forward of unrecognized tax benefits and associated accrued interest and penalties is as follows:
 
(in millions)
  
Unrecognized
Tax Benefits
    
Interest and
Penalties
    
Total
 
Opening balance at January 1
   $ 14.4      $ 2.0      $ 16.4  
Net change for tax positions of prior periods
     (1.1      0.2        (0.9
  
 
 
    
 
 
    
 
 
 
Closing balance at September 30
     13.3        2.2        15.5  
Current
     0.0        0.0        0.0  
  
 
 
    
 
 
    
 
 
 
Non-current
   $ 13.3      $ 2.2      $ 15.5  
  
 
 
    
 
 
    
 
 
 
All of the $15.5 million of unrecognized tax benefits, interest and penalties would impact our effective tax rate if recognized.
As previously disclosed, a
non-U.S.
subsidiary, Innospec Performance Chemicals Italia Srl, is subject to an ongoing tax audit in relation to the period 2011 to 2014 inclusive. The Company has determined that additional tax, interest and penalties totaling $3.3 million may arise as a consequence of the tax audit. This includes a reduction in interest accrued of $0.1 million and an increase for foreign exchange movements of $0.1 million recorded in the nine months to September 30, 2020. As any additional tax arising as a consequence of the tax audit would be reimbursed by the previous owner under the terms of the sale and purchase agreement, an indemnification asset of the same amount is recorded in the financial statements to reflect this arrangement.
As previously disclosed, in 2018 the Company recorded an unrecognized tax benefit in relation to a potential adjustment that could arise as a consequence of the Tax Cuts and Jobs Act, but for which retrospective adjustment to the filed 2017 U.S. federal income tax returns was not permissible. The Company has determined that additional tax, interest and penalties totaling $12.2 million may arise in relation to this item. This includes an increase in interest accrued of $0.5 million in the nine months to September 30, 2020.
As previously disclosed, in 2015 the Company recorded an unrecognized tax benefit of $1.2 million in relation to additional tax that could have arisen if a historical impairment in value of certain of the Company’s
non-U.S.
subsidiaries was reversed upon challenge by the tax authorities. The Company released the provision of $1.2 million in full, together with accrued interest of $0.2 million thereon, in the three months ended June 30, 2020, following a review of the value of the Company’s investments that confirmed the historical impairment in value undertaken in 2005 was appropriate.
The Company and its U.S. subsidiaries remain open to examination by the IRS for years 2016 onwards under the statute of limitations. The Company’s subsidiaries in foreign tax jurisdictions are open to examination including Germany (2015 onwards), Switzerland (2015 onwards), Spain (2016 onwards), France (2017 onwards) and the United Kingdom (2018 onwards).
v3.20.2
Long-Term Debt
9 Months Ended
Sep. 30, 2020
Debt Disclosure [Abstract]  
Long-Term Debt
NOTE 9 – LONG-TERM DEBT
Long-term debt consists of the following:
 
(in millions)
  
September 30,

2020
    
December 31,

2019
 
Revolving credit facility
   $ 0.0      $ 60.0  
Deferred finance costs
     0.0        (1.4
  
 
 
    
 
 
 
   $ 0.0      $ 58.6  
  
 
 
    
 
 
 
On September 16, 2020, Innospec and certain of its subsidiaries agreed to extend the term of its revolving credit facility until
September 25, 2024.
The costs of $0.3 million for extending the term have been capitalized on the balance sheet.
As at September 30, 2020, the Company had repaid all of its borrowings under the revolving
credit
facility and as a result, the related deferred finance costs
asset
 
of $1.4 million
is
now included within other
non-current
assets at the balance sheet date.
v3.20.2
Plant Closure Provisions
9 Months Ended
Sep. 30, 2020
Restructuring and Related Activities [Abstract]  
Plant Closure Provisions
NOTE 10 – PLANT CLOSURE PROVISIONS
The Company has continuing plans to close some of its manufacturing facilities at sites around the world as and when those operations are expected to be decommissioned. The liability for estimated closure costs of Innospec’s manufacturing facilities includes costs for decontamination and environmental remediation activities (“remediation”).
As a result, the principal site giving rise to remediation liabilities is the manufacturing site at Ellesmere Port in the United Kingdom. There are also remediation liabilities on a much smaller scale in respect of our other manufacturing sites in the U.S. and Europe.
Movements in the provisions are summarized as follows:
 
(in millions)
  
2020
 
Total at January 1
   $ 49.3  
Charge for the period
     11.0  
Utilized in the period
     (2.7
Exchange effect
     0.3  
  
 
 
 
Total at September 30
     57.9  
Due within one year
     (5.2
  
 
 
 
Due after one year
   $ 52.7  
  
 
 
 
The charge for the nine months ended September 30, 2020 was $11.0 million (nine months ended September 30, 2019 – $3.2 million). This includes $7.5 million of additional provisions as a result of the restructuring activities following the cessation of sales of TEL for use in motor gasoline (see Note 4 of the Notes to the Condensed Consolidated Financial Statements for further information).
Amounts due within one year refer to provisions where expenditure is expected to arise within one year of the balance sheet date.
v3.20.2
Fair Value Measurements
9 Months Ended
Sep. 30, 2020
Fair Value Disclosures [Abstract]  
Fair Value Measurements
NOTE 11 – FAIR VALUE MEASUREMENTS
The following table presents the carrying amount and fair values of the Company’s financial assets and liabilities measured on a recurring basis:
 
    
September 30, 2020
    
December 31, 2019
 
(in millions)
  
Carrying

Amount
    
Fair

Value
    
Carrying

Amount
    
Fair

Value
 
Assets
           
Non-derivatives:
           
Cash and cash equivalents
   $ 66.6      $ 66.6      $ 75.7      $ 75.7  
Derivatives (Level 1 measurement):
           
Other current and
non-current
assets:
           
Foreign currency forward exchange contracts
     0.2        0.2        0.8        0.8  
Liabilities
           
Non-derivatives:
           
Long-term debt (including current portion)
   $ 0.0      $ 0.0      $ 58.6      $ 58.6  
Finance leases (including current portion)
     0.6        0.6        1.5        1.5  
Non-financial
liabilities (Level 3 measurement):
           
Other current and
non-current
liabilities:
           
Stock equivalent units
     12.3        12.3        24.6        24.6  
The following methods and assumptions were used to estimate the fair values:
Cash and cash equivalents:
The carrying amount approximates fair value because of the short-term maturities of such instruments.
Derivatives:
The fair value of derivatives relating to foreign currency forward exchange contracts are derived from current settlement prices and comparable contracts using current assumptions. Foreign currency forward exchange contracts primarily relate to contracts entered into to hedge future known transactions or hedge balance sheet net cash positions. The movements in the carrying amounts and fair values of these contracts are largely due to changes in exchange rates against the U.S. dollar.
Long-term debt and finance leases:
Long-term debt comprises the revolving credit facility, which is shown net of deferred finance costs that have been capitalized. Finance leases relate to certain fixed assets in our Fuel Specialties and Oilfield Services segments. The carrying amount of long-term debt and finance leases approximates to the fair value.
Stock equivalent units:
The fair values of stock equivalent units are calculated at each balance sheet date using either the Black-Scholes or Monte Carlo method depending on the terms of each grant.
v3.20.2
Derivative Instruments and Risk Management
9 Months Ended
Sep. 30, 2020
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Instruments and Risk Management
NOTE 12 – DERIVATIVE INSTRUMENTS AND RISK MANAGEMENT
The Company enters into various foreign currency forward exchange contracts to minimize currency exchange rate exposure from expected future cash flows. As at September 30, 2020 the contracts have maturity dates of up to twelve months at the date of inception. These foreign currency forward exchange contracts have not been designated as hedging instruments, and their impact on the income statement for the first nine months of 2020 was a gain of $0.7 million (first nine months of 2019: gain of $2.9 million).
As at September 30, 2020 and December 31, 2019 the Company did not hold any interest rate swaps. In prior years, the Company entered into interest rate swaps to minimize interest rate exposure related to a portion of its borrowing requirements. These interest rate swaps were designated as hedging instruments, and their impact on accumulated other comprehensive loss for the first nine months of 2019 was a loss of $1.8 million.
v3.20.2
Commitments and Contingencies
9 Months Ended
Sep. 30, 2020
Commitments and Contingencies Disclosure [Abstract]  
Commitments and Contingencies
NOTE 13 – COMMITMENTS AND CONTINGENCIES
Legal matters
While we are involved from time to time in claims and legal proceedings that result from, and are incidental to, the conduct of our business including business and commercial litigation, employee and product liability claims, there are no material pending legal proceedings to which the Company or any of its subsidiaries is a party, or of which any of their property is subject. It is possible, however, that an adverse resolution of an unexpectedly large number of such individual claims or proceedings could in the aggregate have a material adverse effect on the results of operations for a particular year or quarter.
Guarantees
The Company and certain of the Company’s consolidated subsidiaries are contingently liable for certain obligations of affiliated companies primarily in the form of guarantees of debt and performance under contracts entered into as a normal business practice. This includes guarantees of
non-U.S.
excise taxes and customs duties. As at September 30, 2020, such guarantees which are not recognized as liabilities in the condensed consolidated financial statements amounted to $9.6 million (December 31, 2019 - $4.7 million). The remaining terms of the fixed maturity guarantees vary from 1 month to 3 years, with some further guarantees having no fixed expiry date.
Under the terms of the guarantee arrangements, generally the Company would be required to perform should the affiliated company fail to fulfill its obligations under the arrangements. In some cases, the guarantee arrangements have recourse provisions that would enable the Company to recover any payments made under the terms of the guarantees from securities held of the guaranteed parties’ assets.
The Company and its affiliates have numerous long-term sales and purchase commitments in their various business activities, which are expected to be fulfilled with no adverse consequences material to the Company.
v3.20.2
Stock-Based Compensation Plans
9 Months Ended
Sep. 30, 2020
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
Stock-Based Compensation Plans
NOTE 14 – STOCK-BASED COMPENSATION PLANS
The Company grants stock options and stock equivalent units (“SEUs”) from time to time as a long-term performance incentive. In certain cases the grants are subject to performance conditions such as the Company’s stock price. Where performance conditions apply the Monte Carlo simulation model is used to determine the fair values. Otherwise the Black-Scholes model is used to determine the fair values.
Stock option plans
The following table summarizes the transactions of the Company’s stock option plans for the nine months ended September 30, 2020:
 
    
Number of
Options
    
Weighted
Average
Exercise
Price
    
Weighted
Average
Grant-Date

Fair Value
 
Outstanding at December 31, 2019
     504,459      $ 33.05      $ 41.35  
Granted - at discount
     63,950      $ 1.11      $ 76.80  
- at market value
     10,419      $ 95.70      $ 18.69  
Exercised
     (92,551    $ 12.84      $ 48.71  
Forfeited
     (19,837    $ 34.07      $ 40.65  
  
 
 
       
Outstanding at September 30, 2020
     466,440      $ 34.04      $ 44.27  
  
 
 
       
At September 30, 2020, there were 35,157 stock options that were exercisable, of which 7,611 had performance conditions attached.
The stock option compensation cost for the first nine months of 2020 was $4.4 million (first nine months of 2019 – $4.9 million). The total intrinsic value of options exercised in the first nine months of 2020 was $4.7 million (first nine months of 2019 – $2.7 million).
The total compensation cost related to
non-vested
stock options not yet recognized at September 30, 2020 was $8.4 million and this cost is expected to be recognized over the weighted-average period of 1.75 years.
Stock equivalent units
The following table summarizes the transactions of the Company’s SEUs for the nine months ended September 30, 2020:
 
    
Number of
SEUs
    
Weighted
Average
Exercise
Price
    
Weighted
Average
Grant-Date

Fair Value
 
Outstanding at December 31, 2019
     390,816      $ 3.69      $ 59.91  
Granted - at discount
     113,107      $ 0.00      $ 76.63  
- at market value
     3,634      $ 95.70      $ 18.69  
Exercised
     (93,057    $ 0.82      $ 60.04  
Forfeited
     (21,336    $ 0.68      $ 65.62  
  
 
 
       
Outstanding at September 30, 2020
     393,164      $ 4.32      $ 64.00  
  
 
 
       
At September 30, 2020 there were 53,146 SEUs that are exercisable, of which 46,614 had performance conditions attached.
The charges for SEUs are spread over the life of the award subject to a revaluation to fair value each quarter. The revaluation may result in a charge or a credit to the income statement in the quarter dependent upon our share price and other performance criteria.
The SEU compensation for the first nine months of 2020 was a $4.9 million credit (first nine months of 2019 – $14.0 million charge). The total intrinsic value of SEUs exercised in the first nine months of 2020 was $6.3 million (first nine months of 2019 – $6.8 million).
The weighted-average remaining vesting period of
non-vested
SEUs is 2.05 years.
v3.20.2
Reclassifications out of Accumulated Other Comprehensive Loss
9 Months Ended
Sep. 30, 2020
Equity [Abstract]  
Reclassifications out of Accumulated Other Comprehensive Loss
NOTE 15 – RECLASSIFICATIONS OUT OF ACCUMULATED OTHER COMPREHENSIVE LOSS
Reclassifications out of accumulated other comprehensive loss for the first nine months of 2020 were:
 
(in millions)
Details about AOCL Components
  
Amount
Reclassified
from AOCL
    
Affected Line Item in the
 
Statement where
 
Net 
Income is Presented
Defined benefit pension plan items:
     
Amortization of prior service credit
   $ (0.6    See
(1)
below
Amortization of actuarial net losses
     1.2      See
(1)
below
  
 
 
    
     0.6      Total before tax
     0.0      Income tax expense
  
 
 
    
Total reclassifications
  
$
0.6
 
   Net of tax
  
 
 
    
 
(
1)
 
These items are included in other income and expense. See Note 7 of the Notes to the Condensed Consolidated Financial Statements for additional information.
Changes in accumulated other comprehensive loss for the first nine months of 2020, net of tax, were:
 
(in millions)
  
Defined
Benefit
Pension Plan
Items
    
Cumulative
Translation
Adjustments
    
Total
 
Balance at December 31, 2019
   $ (9.3    $ (65.1    $ (74.4
  
 
 
    
 
 
    
 
 
 
Other comprehensive income before reclassifications
     0.0        9.5        9.5  
Amounts reclassified from AOCL
     0.6        0.0        0.6  
  
 
 
    
 
 
    
 
 
 
Total other comprehensive income
     0.6        9.5        10.1  
  
 
 
    
 
 
    
 
 
 
Balance at September 30, 2020
   $ (8.7    $ (55.6    $ (64.3
  
 
 
    
 
 
    
 
 
 
 
v3.20.2
Recently Issued Accounting Pronouncements
9 Months Ended
Sep. 30, 2020
Accounting Changes and Error Corrections [Abstract]  
Recently Issued Accounting Pronouncements
NOTE 16 – RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In December 2019, the Financial Accounting Standards Board issued Accounting Standards Update (ASU)
No. 2019-12,
Simplifying the Accounting for Income Taxes (Topic 740), which removes certain exceptions to the general principles in Topic 740 and improves consistent application of and simplifies GAAP for other areas of Topic 740 by clarifying and amending existing guidance. This ASU is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years, with early adoption permitted. The Company is evaluating the effect of adopting this new accounting guidance but does not expect adoption will have a material impact on the Company’s disclosures.
v3.20.2
Related Party Transactions
9 Months Ended
Sep. 30, 2020
Related Party Transactions [Abstract]  
Related Party Transactions
NOTE 17 – RELATED PARTY TRANSACTIONS
Mr. Patrick S. Williams has been an executive director of the Company since April 2009 and has been a
non-executive
director of AdvanSix, a chemicals manufacturer, since February 2020. In the first nine months of 2020 the Company purchased product from AdvanSix for $0.2 million. As at September 30, 2020, the Company owed $0.0 million to AdvanSix.
Mr. Robert I. Paller has been a
non-executive
director of the Company since November 1, 2009. The Company has retained and continues to retain Smith, Gambrell & Russell, LLP (“SGR”), a law firm with which Mr. Paller holds a position. In the first nine months of 2020 the Company incurred fees from SGR of $0.6 million (first nine months of 2019 – $0.4 million). As at September 30, 2020, the Company owed $0.1 million to SGR (December 31, 2019 – $0.0 million).
Mr. David F. Landless has been a
non-executive
director of the Company since January 1, 2016 and is a
non-executive
director of Ausurus Group Limited which owns European Metal Recycling Limited (“EMR”). The Company has sold scrap metal to EMR in the first nine months of 2020 for a value of $0.2 million (first nine months of 2019 – $0.4 million). A tendering process is operated periodically to select the best buyer for the sale of scrap metal by the Company. As at September 30, 2020 EMR owed $0.0 million for scrap metal purchased from the Company (December 31, 2019 – $0.0 million).
v3.20.2
Segment Reporting (Tables)
9 Months Ended
Sep. 30, 2020
Segment Reporting [Abstract]  
Segment Reporting
The Company evaluates the performance of its segments based on operating income. The following tables analyze sales and other financial information by the Company’s reportable segments:

    
Three Months Ended

September 30
    
Nine Months Ended
September 30
   
(in millions)
  
2020
    
2019
    
2020
    
2019
   
Net Sales:
           
Refinery and Performance
   $ 86.8      $ 96.5      $ 270.3      $ 309.0    
Other
     33.2        47.6        104.1        124.4    
  
 
 
    
 
 
    
 
 
    
 
 
   
Fuel Specialties
     120.0        144.1        374.4        433.4    
  
 
 
    
 
 
    
 
 
    
 
 
   
Personal Care
     57.1        55.0        169.9        170.9    
Home Care
     21.6        21.1        64.5        71.2    
Other
     23.3        23.8        76.4        80.6    
  
 
 
    
 
 
    
 
 
    
 
 
   
Performance Chemicals
     102.0        99.9        310.8        322.7    
  
 
 
    
 
 
    
 
 
    
 
 
   
Oilfield Services
     43.1        121.4        197.1        358.1    
Octane Additives
     0.0        6.5        0.0        8.4    
  
 
 
    
 
 
    
 
 
    
 
 
   
   $
265.1
   $  
371.9
   $  
882.3
   $  
1,122.6
 
  
 
 
    
 
 
    
 
 
    
 
 
   
Gross profit/(loss):
           
Fuel Specialties
   $ 40.3      $ 54.1      $ 116.9      $ 154.5    
Performance Chemicals
     24.0        22.6        76.5        73.2    
Oilfield Services
     14.4        41.2        60.5        120.4    
Octane Additives
     0.0        1.2        (2.2      (0.1  
  
 
 
    
 
 
    
 
 
    
 
 
   
   $ 78.7      $ 119.1      $ 251.7      $ 348.0    
  
 
 
    
 
 
    
 
 
    
 
 
   
Operating income/(loss):
           
Fuel Specialties
   $ 22.2      $ 31.1      $ 59.0      $ 88.1    
Performance Chemicals
     12.4        9.3        40.2        33.8    
Oilfield Services
     (4.5      10.0        (9.7      27.9    
Octane Additives
     0.0        0.8        (2.8      (1.9  
Corporate costs
     (13.3      (13.0      (41.5      (41.8  
Restructuring charge
     0.0        0.0        (21.1      0.0    
Impairment of intangible assets
     0.0        0.0        (19.8      0.0    
  
 
 
    
 
 
    
 
 
    
 
 
   
Total operating income
   $ 16.8      $ 38.2      $ 4.3      $ 106.1    
  
 
 
    
 
 
    
 
 
    
 
 
   
v3.20.2
Earnings per Share (Tables)
9 Months Ended
Sep. 30, 2020
Earnings Per Share [Abstract]  
Summary of Earnings Per Share Per share amounts are computed as follows:
    
Three Months Ended
September 30
    
Nine Months Ended
September 30
 
    
2020
    
2019
    
2020
    
2019
 
Numerator (in millions):
           
Net income available to common stockholders
   $ 12.7      $ 30.1      $ 6.1      $ 81.1  
  
 
 
    
 
 
    
 
 
    
 
 
 
Denominator (in thousands):
           
Weighted average common shares outstanding
     24,570        24,491        24,555        24,476  
Dilutive effect of stock options and awards
     150        224        203        224  
  
 
 
    
 
 
    
 
 
    
 
 
 
Denominator for diluted earnings per share
     24,720        24,715        24,758        24,700  
  
 
 
    
 
 
    
 
 
    
 
 
 
Net income per share, basic:
   $ 0.52      $ 1.23      $ 0.25      $ 3.31  
  
 
 
    
 
 
    
 
 
    
 
 
 
Net income per share, diluted:
   $ 0.51      $ 1.22      $ 0.25      $ 3.28  
  
 
 
    
 
 
    
 
 
    
 
 
 
v3.20.2
Goodwill (Tables)
9 Months Ended
Sep. 30, 2020
Goodwill and Intangible Assets Disclosure [Abstract]  
Summary of Goodwill
The following table summarizes the goodwill movements:
 
(in millions)
  
Gross Cost
    
Accumulated
Impairment
Losses
    
Net Book
Amount
 
Opening balance at January 1
   $ 599.5      $ (236.5    $ 363.0  
Exchange effect
     4.2        0.0        4.2  
  
 
 
    
 
 
    
 
 
 
Closing balance at September 30
   $ 603.7      $ (236.5    $ 367.2